Visa Inc.’s plan to add mobile-phone payment capabilities to handsets available now could provide a shot in the arm for contactless payment.
Visa planned to announce today it is collaborating with DeviceFidelity Inc. to offer issuers a contactless-payment component that consumers could install in the memory card slots of most mobile phones.
Payments companies have been testing mobile phones with built-in Near Field Communication payment chips for years, but they have made little progress in bringing such handsets to market because of difficulty deciding how to divvy up revenue among the various players involved, including handset makers.
The DeviceFidelity technology would enable issuers to sidestep this hurdle by providing the payments hardware to consumers; Visa said it plans to test the system in the second quarter with an issuer, which it would not name.
“There is pent-up demand for mobile payments, and this is a way to move the market forward,” Dave Wentker, Visa head of mobile contactless payment, said in an interview last week.
Visa was scheduled to announce the partnership at the Mobile World Congress in Barcelona.
Adding payment features to mobile phones would be a step forward for contactless, which is languishing in the U.S. five years after its introduction, analysts say. The technology, designed to speed up transactions by enabling consumers to tap cards near card readers instead of swiping a magnetic stripe card, suffers from low consumer awareness and patchy distribution of both contactless cards and the readers needed to handle them.
Card issuers are eager to enable contactless payments with mobile phones, Wentker says. Giving consumers the opportunity to conduct transactions with their mobile phones could “help pave the way for the global deployment of NFC-enabled devices,” he says.
Phones will require a microSD memory card slot to use the mobile contactless device; roughly 57% of mobile phones on the market have such a slot, industry analysts say. (Apple Inc.’s iPhone does not.)
Visa envisions issuers selling, or distributing to customers for free, DeviceFidelity’s In2Pay cards, which integrate with a phone’s operating system and are managed by an application on the handset.
“This innovation would enable banks to add” contactless payments “to their mobile banking applications, with the opportunity to customize its appearance to some extent,” Wentker says.
Red Gillen, a senior analyst with the Boston market research company Celent, questions the business model. “In the case of NFC, it will most likely be the mobile carriers that pay for NFC chips. In the Visa test case, it will be the banks that pay for the microSD cards,” Gillen says. “If the NFC and microSD technologies share the goal of contactless payments, what is the rationale for banks to prefer the latter?”
Beth Robertson, the director of payments research at Javelin Strategy and Research, says the In2Pay cards will not work with a crucial target market for mobile payments. “If iPhones cannot be adapted to Visa’s technology, that is a drawback because Javelin research shows smartphone users in general, and iPhone owners in particular, are individuals with the greatest level of interest in mobile payment technology,” she says.
However, linking the payment feature to the phone’s software is an important advance over existing payment devices, such as stickers, that can consumers may attach to phones but do not work with phones, Robertson says.
“Integration with the phone keypad is valuable as mobile will be a key driver of contactless,” she says.
One of the hurdles to widespread adoption of contactless payments is the dearth of contactless readers in the U.S. market. Farhan Ahmad, Discover Financial Services general manager of prepaid and emerging payments, says about 70,000 contactless readers exist in the U.S. out of 7 million to 8 million point-of-sale terminals.
“Contactless payment has not widely caught on anywhere,” says Megan Bramlette, a managing associate with Auriemma Consulting. “The penetration of card readers must be really widespread before it matters to consumers.”
But adding contactless payments to phones would be an improvement over contactless cards, Bramlette says. “If I can actually pay using the phone, I’m saving a step. Otherwise, just paying with a contactless card is about the same amount of trouble as paying with a magnetic stripe card.”
Wentker acknowledges that Visa’s mobile application falls short of building NFC chips into phones from the start, which would deliver multiple payment applications and two-way communication for making and receiving payments.
“Mobile payment is in the process of evolving,” he says. “We do not yet have the elegance of a full NFC payment solution widely available, but mobile contactless is a steppingstone in that direction.”
